Mar Jul, L.L.C. v. Hurst , 2013 Ohio 479 ( 2013 )

[Cite as Mar Jul, L.L.C. v. Hurst, 2013-Ohio-479.]
IN THE COURT OF APPEALS OF OHIO
FOURTH APPELLATE DISTRICT
WASHINGTON COUNTY
MAR JUL, LLC, :
Plaintiff-Appellant, : Case No. 12CA6
vs. :
BERNARD W. HURST, : DECISION AND JUDGMENT ENTRY
Defendant-Appellee. :
_________________________________________________________________
APPEARANCES:
COUNSEL FOR APPELLANT: John E. Triplett, Jr., and Daniel P. Corcoran, THEISEN
BROCK, 424 Second Street, Marietta, Ohio 45750
COUNSEL FOR APPELLEES: Ethan Vessels, FIELDS, DEHMLOW & VESSELS, LLC,
309 Second Street, Marietta, Ohio 45750
CIVIL CASE FROM COMMON PLEAS COURT
DATE JOURNALIZED: 2-6-13
ABELE, J.
{¶ 1} This is an appeal from a Washington County Common Pleas Court summary
judgment in favor of Bernard W. Hurst, defendant below and appellee herein. Mar Jul LLC,
plaintiff below and appellant herein, assigns the following error for review:
“THE TRIAL COURT ERRED IN GRANTING SUMMARY
JUDGMENT TO DEFENDANT-APPELLEE BECAUSE THERE
WERE DISPUTED ISSUES OF MATERIAL FACT.”
{¶ 2} In 2006, appellant, which is owned by Mark and Julie Haessly, paid $1,382,500 to
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purchase commercial real estate from appellee in an “as is” condition. As part of the transaction,
appellee assigned the leases for the occupied commercial properties to appellant.
{¶ 3} After appellant took possession of the property, it began to discover problems with
the real estate and the leases. For example, appellant observed that a building's foundation
appeared sunken. Appellant also learned that the real estate lacked a water supply. With respect
to the leases, appellant discovered that (1) some tenants paid less rent than it had been led to
believe, and (2) not all tenants intended to renew their leases.
{¶ 4} On August 5, 2010, appellant filed a complaint that alleged fraud, and breach of
contract and express and implied warranties. Regarding the fraud claims, appellant alleged that
appellee (1) concealed a material fact by failing to disclose the faulty and defective foundation of
one of the buildings; (2) falsely represented the amount of rental income generated; and (3) falsely
represented the duration of the current leases. With respect to the breach of contract and express
and implied warranties claim, appellant claimed that appellee (1) expressly and impliedly asserted
that the property rental value was greater than its true value; and (2) misrepresented the condition
of the property and the propriety of the property for its intended purpose. Appellant asserted that
“[t]he failure of the property and rentals to conform to [appellee’s] representation constitutes a
breach of contract.”
{¶ 5} On March 4, 2011, appellee requested summary judgment and alleged that
appellant’s fraud claim regarding the physical defects fails as a matter of law because (1) the
property was sold “as is;” and (2) no genuine issues of material fact remain as to whether appellee
fraudulently misrepresented or concealed the physical condition of the property. Appellee
contended that no evidence exists that appellee made any statements regarding the lease renewals
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or amounts, and that even if he did, no evidence exists that the statements were false. Appellee
further argued that appellant could not demonstrate that it justifiably relied upon any alleged false
statement when it did not look at the leases before agreeing to purchase the real estate or before
signing the closing documents. Appellee additionally argued that the statute of limitations bars
appellant’s fraud claims. He contended that because any alleged fraudulent statements must have
occurred before appellant signed the June 15, 2006 purchase agreement, appellant’s August 5,
2010 complaint falls outside the four-year statute of limitations that governs fraud claims.
{¶ 6} In its response, appellant argued that the statute of limitations did not bar its claim
because it did not discover the fraud until after the sale, which appellant claimed occurred on
August 8, 2006. Appellant also disputed appellee’s claim that the “as is” clause barred its fraud
claim because appellee engaged in active misrepresentation or concealment.
{¶ 7} To support their respective arguments, the parties referred to Mark Haessly’s and
appellee’s depositions. Appellant further presented three affidavits, one from the Pastor of Blaze
of Glory Worship Center (Charles Hall), one from the person who built the daycare building
(David Burt), and one from Haessly (a principal in Mar Jul LLC).
{¶ 8} At his deposition, Haessly stated that “several months” after appellant purchased the
real estate, he discovered problems with the daycare building foundation. Haessly explained that
the back portion of the building “looks * * * like the ground work was not done right” and when
the ground began to sink, so did the building. Haessly testified that he inspected the property
before purchasing it, but that he did not get a “good look inside.” Haessly explained that appellee
had requested him “not to go back” to the daycare center, but admitted that appellee did nothing
“to prohibit [him] from making a more intense inspection of the foundation.” Haessly stated that
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he viewed the outside of the building, but further stated that appellee “basically more or less he
would just drive us around” and Haessly did not look at anything up close. Haessly also stated
that he did not hire an inspector and explained that he could have inspected the building more
thoroughly if “appellee would have let” him.
{¶ 9} Appellee’s counsel questioned Haessly about whether appellee prohibited Haessly
from inspecting the building. Haessly responded: “I can’t just say no, he wouldn’t let us, but he
said that he didn’t want us talking to nobody, not to interfere when–hours–this place was open I
don’t know about 24 hours a day at the time, but it was close to it.” When asked whether appellee
prevented him from looking at the foundation of the building, Haessly stated that “you couldn’t
really tell * * * at that time” whether the foundation had sunk. When asked if appellee did
“anything to prohibit [him] from making a more intense inspection of the foundation,” Haessly
stated: “I would have to say no, but I didn’t know there was a problem.”
{¶ 10} Appellee’s counsel asked Haessly whether appellee “ever actively sa[id] anything to
[Haessly] one way or the other about foundations or concrete before the purchase.” Haessly
responded, “He just said that the buildings was fairly new and they was all in good shape. [sic]”
When asked whether “the condition of the foundation was able to be discovered if it had been
inspected before [appellant] signed the purchase contract,” Haessly responded, “I would have
thought an inspector would have found it, yes.”
{¶ 11} With respect to the leases, Haessly testified that appellee informed him that the
church would be “good for another five years. That would be another lease of five years. The
lease was for five years.” Haessly admitted that he did not look at the written leases, but
explained that he did not do so “because [appellee] didn’t give them to us.” Haessly also stated
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that he did not request to see the leases. Haessly stated that he knew the church’s lease expired in
November, but appellee informed him “not to worry about it,” that “[t]hey’re good for another five
years.” Haessly also testified that appellee told him not to talk to anyone at the church.
{¶ 12} Haessly stated that appellee informed him about the leases, (i.e., how much rent and
“the automatic renewal”) and that appellee provided him with a sheet of paper that listed the rental
amounts. Haessly noted that the rents the tenants paid to Haessly after he took possession differed
from both appellee’s listed amounts and the contractual amounts. Haessly further explained that
appellee also told him that the leases were “automatically renewed.”
{¶ 13} Haessly also testified that appellee told him that Grandma’s Catering was “good for
another year.” After appellant purchased the property, however, Grandma’s Catering called
Haessly and stated, “Did you know that I had already told [appellee] months ago that I was
leaving?” Haessly stated that the owner of Grandma’s Catering sent him “a copy of the certified
letter” that the owner sent to appellee.1 Haessly further stated that appellee lied about the rental
income from the church. Appellee advised Haessly that it was $3150, but that it was actually
$2850.
{¶ 14} In his deposition, appellee stated that the church was constructed in 2001 and the
daycare facility in 2003. He testified that before June 2006, he was not aware of any problems
with the daycare building foundation, but he knew that the building was built “out of square” or
“crooked.” Appellee explained that when the kitchen cabinets were installed, the contractor
informed appellee that the cabinets would not level. Appellee spoke with David Burt, who
1
Although appellant referenced this letter as being attached to one of his filings, we have not been able to locate a
copy of this letter in the record transmitted on appeal. The letter also is listed as an exhibit to appellee’s deposition.
WASHINGTON, 12CA6 6
constructed the buildings, but decided not to “do anything about it” because “[i]t didn’t hurt the
overall structure of the building.” Appellee explained that he did not believe that either the
daycare or church foundation was “in poor condition or in need of repair.”
{¶ 15} Appellee stated that when appellant purchased the property, the well that supplied
water to the daycare and church was not located on the property. He testified that he informed
appellant that the well was not on the church/daycare property and that the buildings did not have
any water supply.
{¶ 16} Regarding the leases, appellee testified that in 2005, Pastor Hall advised appellee
that the church would renew its lease for another five years upon the expiration of its current
five-year term. Appellee explained that in 2006, Hall, who also leased the daycare, defaulted on
the daycare lease. Appellee testified that he informed appellant in March or April 2006 that the
daycare lessee had defaulted. Appellee stated that when Hall defaulted, he did not know whether
Hall would renew the church lease. Appellee also testified that Hall did not tell him that the
church would not renew the lease. Appellee explained that if Hall averred that he told appellee
before the August 2006 closing that the church did not intend to renew its lease, then Hall “would
be misrepresenting the truth.” He further stated that he “disclosed to [appellant] throughout the
whole process of every change that took place in the mall or the church and day care.”
{¶ 17} Appellee also explained that he informed appellant that the daycare paid $3,150 in
rent and the church paid $2,500. Appellee testified that he had shown appellant the leases and had
discussed the lease issues with appellant. He stated that he prepared an income potential
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statement for the rental properties and faxed it to appellant in April 2007.2
{¶ 18} Appellee stated that the day after closing on the property, he informed appellant that
Grandma’s Catering would not be renewing its lease. Later, however, he stated that he informed
appellant before the closing that Grandma’s Catering had provided written notice that it would not
renew its lease. Appellee admitted that he requested appellant “not to approach the tenants up
until [appellant] decided whether [appellant] wanted to buy the property or not.” He explained
that appellant could speak with the tenants after it signed the purchase agreement.
{¶ 19} In his affidavit, the pastor stated that he informed appellee before June 2006 that the
church would not renew its lease beyond October 2006.
{¶ 20} In his affidavit, Burt stated that after he constructed the building, appellee alleged
that the building was not properly constructed and that issues existed with the fill work and the
foundation. Burt averred, however, that a study had shown that appellee’s excavation or backhoe
work caused the foundation issue.
{¶ 21} Haessly’s affidavit further stated that: (1) appellee did not disclose that the daycare
building “was out of square”; (2) appellee did not advise appellant that the water supply to the
church and daycare was not a municipal water supply or on the premises; (3) appellee specifically
represented to appellant that the church and daycare buildings had city water; (4) appellee failed to
advise appellant that the church would not be renewing its lease; (5) appellee did not inform
appellant that the church or daycare had been in default of the lease; (6) appellee did not make the
2
Although the deposition testimony states that appellee faxed the document in April 2007, the context suggests that
“2007" is either a misstatement or a misprint and that it should be April 2006. Furthermore, although this document is listed
as an exhibit to appellee’s deposition, it is not in the record.
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written leases available until after closing; (7) appellee did not inform appellant about any verbal
rental agreement modifications; (8) appellee did not advise appellant until after the closing that
Grandma’s Catering would be moving; and (9) during the closing, appellee assured appellant that
all of the leases were current and that he did not foresee problems renewing the leases.
{¶ 22} On December 13, 2011, the trial court entered summary judgment in appellee’s
favor. Regarding “the issue of the leases,” the court noted that appellee argued that appellant did
not request to see the leases and that it was free to contact the lessees. The court also determined
that the alleged physical defects were capable of being “discovered upon inspection.” The court
further concluded appellant failed to plead with particularity his fraud claims relating to all
physical conditions of the property, except the foundation issue. The court thus determined that
appellant’s failure to properly plead the alleged fraudulent statements with respect to the other
physical defects was “fatal to them.” The court consequently concluded that no genuine issues of
material fact remained and that appellee is entitled to judgment as a matter of law.3
{¶ 23} On December 23, 2011, the trial court entered a final judgment granting appellee
summary judgment and dismissing the case. This appeal followed.
3
The trial court did not provide a specific rationale for entering summary judgment in appellee’s favor regarding (1)
appellant’s claim that appellee committed fraud in relation to the leases or (2) regarding appellant’s breach of
contract/warranty claim. We note, however, that a court need not provide specific reasons in a summary judgment decision.
E.g., Civ.R. 52.
WASHINGTON, 12CA6 9
{¶ 24} In its sole assignment of error, appellant asserts that the trial court improperly
entered summary judgment because genuine issues of material fact remain regarding its fraud
claims.4 Appellant argues that genuine issues of material fact remain as to whether appellee (1)
fraudulently misrepresented or concealed the physical condition of the property, (2) fraudulently
misrepresented that the real estate had city water and that the daycare building was “fairly new”
and “in good shape,” and (3) fraudulently misrepresented the amount of rent that the leased
properties generated and the renewal of the leases.
{¶ 25} Appellee asserts that the purchase agreement's “as is” clause bars appellant’s claim
that appellee failed to disclose the alleged physical defects when appellant could have observed the
alleged defects upon a reasonable inspection and when appellee did not engage in active fraud or
concealment. With respect to appellant’s claim that appellee misrepresented the church’s lease
renewal, appellee argues that appellant cannot establish that appellee knew any such statement was
false. Regarding the lease amounts, appellee first contends that appellant failed to produce
documentary evidence that appellee misrepresented the lease amounts and next argues that, even if
he made any statements regarding the lease amounts, appellant cannot demonstrate that it
justifiably relied upon those statements. Appellee asserts that appellant should not have relied
upon any verbal assertions, but instead, it should have reviewed the leases.
4
Appellant has not argued on appeal that the trial court improperly entered summary judgment in appellee’s favor
regarding its breach of contract claim. We observe, however, that an “as is” clause in a contract can bar a breach of contract
claim. Rodgers v. Sipes, 3rd Dist. No. 3-11-19, 2012-Ohio-3070, 2012 WL 2553921, ¶41; Tutolo v. Young, 11th Dist. No.
2010–L–118 2012–Ohio–121, ¶52.
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{¶ 26} Appellee also argues that the statute of limitations bars appellant’s claims because
any alleged wrongdoing occurred before August 4, 2006, and that appellant’s August 5, 2010
complaint falls outside the four-year statute of limitations applicable to fraud claims.5 Appellee
further argues that appellant should have discovered any alleged fraud before August 5, 2010.
Appellee argues that appellant should have discovered any alleged fraudulent statements regarding
the property's physical condition when he inspected the property. He further asserts that appellant
should have reviewed the written leases and discovered any alleged fraudulent statements
regarding the lease agreements before signing the purchase agreement and closing documents.
A
SUMMARY JUDGMENT STANDARD
{¶ 27} Appellate courts review trial court summary judgment decisions de novo. E.g.,
Grafton v. Ohio Edison Co., (1996), 77 Ohio St. 3d 102, 105, 671 N.E.2d 241. Accordingly,
appellate courts must independently review the record to determine if summary judgment is
appropriate. In other words, appellate courts need not defer to trial court summary judgment
decisions. E.g., Brown v. Scioto Cty. Bd. of Commrs., (1993), 87 Ohio App. 3d 704, 711, 622
N.E.2d 1153; Morehead v. Conley, (1991), 75 Ohio App. 3d 409, 411-412, 599 N.E.2d 786. Thus,
to determine whether a trial court properly awarded summary judgment, an appellate court must
review the Civ.R. 56 summary judgment standard as well as the applicable law. Civ.R. 56(C)
provides:
5
Appellee did not raise any argument whether the four-year statute of limitations bars appellant’s breach of
contract/warranty claim. We therefore do not address whether the statute of limitations bars appellant’s breach of contract
claim. Instead, we consider only the argument raised: that the statute of limitations bars appellant’s fraud claims.
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Summary judgment shall be rendered forthwith if the pleadings, depositions,
answers to interrogatories, written admissions, affidavits, transcripts of evidence in
the pending case, and written stipulations of fact, if any, timely filed in the action,
show that there is no genuine issue as to any material fact and that the moving party
is entitled to judgment as a matter of law. No evidence or stipulation may be
considered except as stated in this rule. A summary judgment shall not be rendered
unless it appears from the evidence or stipulation, and only from the evidence or
stipulation, that reasonable minds can come to but one conclusion and that
conclusion is adverse to the party against whom the motion for summary judgment
is made, that party being entitled to have the evidence or stipulation construed most
strongly in the party’s favor.
{¶ 28} Accordingly, a court may not grant summary judgment unless the evidence
demonstrates that (1) no genuine issue as to any material fact remains to be litigated, (2) the
moving party is entitled to judgment as a matter of law, and (3) it appears from the evidence that
reasonable minds can come to but one conclusion, and after viewing the evidence most strongly in
favor of the nonmoving party, that conclusion is adverse to the party against whom the motion for
summary judgment is made. E.g., Vahila v. Hall, (1997), 77 Ohio St. 3d 421, 429-430, 674 N.E.2d
1164.
B
STATUTE OF LIMITATIONS
{¶ 29} We first address appellee’s argument that the statute of limitations bars appellant’s
fraud claims. Appellee argues that because any alleged fraud occurred before August 4, 2006,
appellant failed to file its August 5, 2010 fraud complaint within the four-year statute of
limitations.
{¶ 30} Appellant, however, contends that its fraud cause of action did not accrue until
August 5, 2006 at the earliest, when the parties closed on the property. Appellant further argues
that the discovery rule applies and that genuine issues of material fact remain as to when it
WASHINGTON, 12CA6 12
discovered, or should have discovered, the fraud, thus making summary judgment inappropriate.
{¶ 31} R.C. 2305.09(C) requires a fraud claim to be brought within four years after the
cause of action accrued. The statute further states that a cause of action for fraud does not accrue
until it is discovered. Id. (“If the action is for trespassing under ground or injury to mines, or for
the wrongful taking of personal property, the causes thereof shall not accrue until the wrongdoer is
discovered; nor, if it is for fraud, until the fraud is discovered.”). The Ohio Supreme Court
interpreted this discovery rule to mean that a cause of action for fraud does not accrue until the
plaintiff discovered, or should have discovered, the fraud. Investors REIT One v. Jacobs, 46 Ohio
St.3d 176, 546 N.E.2d 206 (1989), paragraph 2b of the syllabus.
{¶ 32} When a plaintiff discovers, or should have discovered, an alleged fraud usually
constitutes a question of fact that precludes summary judgment. McDougal v. Vecchio, 8th Dist.
No. 98003, 2012-Ohio-4287, ¶18, citing Thut v. Thut, 11th Dist. No. 2000–G–2281 (Apr. 13,
2001). Accord Hamilton v. Ohio Sav. Bank, 70 Ohio St. 3d 137, 140, 637 N.E.2d 887 (1994)
(stating that when alleged fraud was or should have been discovered “necessarily involves
questions of fact that preclude summary judgment”). “Absent actual awareness, the standard to
determine when a person should be aware of the fraud is when he or she possesses ‘facts sufficient
to alert a reasonable person to the possibility of wrongdoing.’” Palm Beach Co. v. Dun &
Bradstreet, Inc., 106 Ohio App. 3d 167, 171, 665 N.E.2d 718 (1st Dist. 1995), quoting NASA Tool
Mfg. Corp. v. Cincinnati Milacron Inc., Clermont App. No. CA86–07–044, (Aug. 31, 1987).
“‘”Once sufficient indicia of fraud are shown, a party cannot rely on its unawareness or the efforts
of the opposition to lull it into a false security to toll the statute.”’” Camp St. Mary’s Assn. of W.
Ohio Conference of the United Methodist Church, Inc. v. Otterbein Homes, 176 Ohio App. 3d 54,
WASHINGTON, 12CA6 13
74, 2008-Ohio-1490, 889 N.E.2d 1066 (3rd Dist.), ¶34, quoting Aluminum Line Prods. Co. v. Brad
Smith Roofing Co., Inc., 109 Ohio App. 3d 246, 260, 671 N.E.2d 1343 (8th Dist. 1996), quoting Au
Rustproofing Ctr. v. Gulf Oil Corp., 755 F.2d 1231, 1237 (C.A.6, 1985). “If by an ordinary
degree of prudence the fraud could have been discovered, such opportunity is equivalent to
knowledge.” Bossey v. Al Castrucci, Inc., 105 Ohio App. 3d 666, 669, 664 N.E.2d 1301 (2nd Dist.
1995), quoting Kettering v. Berger, 4 Ohio App. 3d 254, 261, 448 N.E.2d 458 (2nd Dist. 1982).
{¶ 33} In the case at bar, appellant's complaint alleges that appellee made false statements
“[p]rior to the sale” and that appellant was unaware of their alleged falsity. In its summary
judgment opposition memorandum, appellant asserted that it did not become aware of the falsity of
the statements until after the closing date. Appellant argued that “troubles” did not “appear” until
after appellant took possession. Appellee countered that appellant should have, in the exercise of
reasonable diligence, discovered any alleged fraud before June 15, 2006, when it signed the
purchase agreement. Appellee asserted that if appellant had properly inspected the property and
the leases, it would have discovered any alleged wrongdoing.
{¶ 34} We believe that genuine issues of material fact remain regarding whether the facts
should have alerted appellant to the possibility of wrongdoing. Although we agree that a real
estate purchaser should inspect property before purchasing it, and when a purchase includes leases,
the purchaser also should inspect the leases. In the present case, however, appellant has alleged
that appellee engaged in practices that inhibited its ability to inspect the property. One might
think that when a seller specifically requests a buyer not to speak to tenants or not to look in a
certain area of a building, then the buyer should be alerted to the possibility of fraud. We,
however, are unable to state that in the instant case, that appellee’s conduct necessarily should have
WASHINGTON, 12CA6 14
led appellant to believe appellee was engaging in wrongdoing. Appellant apparently believed that
appellee offered a rational explanation for his requests: to avoid disrupting the tenants and the
business operations. Thus, appellee’s actions should not have necessarily alerted appellant to the
possibility of wrongdoing. Instead, we believe that this question should be reserved to the
factfinder.
{¶ 35} Appellee additionally suggests that appellant failed to exercise ordinary prudence by
failing to engage a professional real estate inspector. However, even had appellant engaged a
professional inspector, no guarantee exists that the inspector would have uncovered the conditions
that appellant now complains. Not every real estate inspection will reveal every physical defect,
especially if a seller conceals them. Thus, we cannot state, as a matter of law, that appellant, by
exercising ordinary prudence, could have discovered the alleged fraud.
{¶ 36} Appellee also asserts that if appellant had exercised ordinary prudence and had
examined the leases before it signed the purchase agreement or the closing documents, it would
have been alerted to the possibility of wrongdoing. Appellee readily admits, however, that the
written leases varied from the verbal agreements that he had apparently reached with certain
tenants. Moreover, even if the leases correctly stated the lease terms and termination dates,
appellee, according to appellant, explicitly informed it that one tenant would be renewing its lease.
Appellee further failed to inform appellant that another tenant had decided not to renew the lease
when appellee had previously led appellant to believe that the tenant would be renewing the lease.
Thus, if appellant had reviewed the written leases, the leases would not have revealed the verbal
modifications and the verbal and separately-written notices that the tenants had provided appellee.
Thus, reviewing the written leases would not have alerted appellee to the possibility of
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wrongdoing.
{¶ 37} Consequently, given the circumstances in the case at bar, it appears that genuine
issues of material fact remain concerning whether appellant discovered, or should have discovered,
the alleged fraud before August 5, 2006. Consequently, we disagree with appellee that the statute
of limitations bars appellant’s fraud claims as a matter of law.
C
FRAUDULENT MISREPRESENTATION AND CONCEALMENT
{¶ 38} To overcome a summary judgment motion in an action for fraudulent
misrepresentation or concealment, a plaintiff must demonstrate that genuine issues of material fact
remain as to each of the following elements: (1) a representation or, when a duty to disclose exists,
concealment of a fact, (2) material to the transaction at hand, (3) made falsely, with knowledge of
its falsity or with such utter disregard and recklessness as to whether it is true or false that
knowledge may be inferred, (4) with the intent to mislead another into relying upon it, (5)
justifiable reliance upon the representation or concealment, and (6) a resulting injury proximately
caused by the reliance. E.g., Burr v. Stark Cty. Bd. of Commrs., (1986), 23 Ohio St. 3d 69, 491
N.E.2d 1101, paragraph two of the syllabus.
{¶ 39} In the case sub judice, the parties dispute whether genuine issues of material fact
remain regarding (1) whether appellee made a false representation or concealed a fact relating to
the church/daycare foundation and the leases, and (2) whether appellant justifiably relied upon the
representations or concealment. Neither party raises any argument relating to the other elements
of a fraudulent misrepresentation claim. We therefore limit our review to determining whether
genuine issues of material fact remain regarding the following elements: (1) representation or
WASHINGTON, 12CA6 16
concealment; (2) falsity; and (3) justifiable reliance.
1
Failure to Plead with Particularity
{¶ 40} First, we observe, as did the trial court, that appellant did not plead with
particularity all of the fraud claims it addressed during the summary judgment proceedings. In its
complaint, appellant raised two basic claims that appellee fraudulently misrepresented or concealed
a fact material to the real estate transaction: (1) appellee concealed the physical condition of the
church/daycare foundation, and (2) appellee fraudulently misrepresented the rental income
generated from the tenants’ leases and the duration of the leases. On appeal (and during the
summary judgment proceedings) appellant further argues that appellee fraudulently misrepresented
that the real estate had city water and that he fraudulently misrepresented or concealed other
physical conditions of the real estate.
{¶ 41} Civ.R. 9(B) requires a fraud complaint to state “with particularity” “the
circumstances constituting fraud.” Dolan v. Glouster, 173 Ohio App. 3d 617, 2007-Ohio-6275,
879 N.E.2d 838, (4th Dist. 2007), ¶28; Ihenacho v. Ohio Inst. of Photography & Technology, 2nd
Dist. No. 24191, 2011-Ohio-3730, ¶30. Generally, “‘the circumstances constituting fraud’ include
the time, place and content of the false representation, the fact misrepresented, and the nature of
what was obtained or given as a consequence.” Aluminum Line Products Co.; Dolan at ¶28; L.E.
Sommer Kidron, Inc. v. Kohler, 9th Dist. No. 06CA0044, 2007–Ohio–885, ¶27. “The
‘particularity’ requirement of Civ.R. 9(B) means that the pleading must contain allegations of fact
which tend to show each and every element of a cause of action for fraud.” Rieger v. Podeweltz,
2nd Dist. No. 23520, 2010–Ohio–2509, ¶9. “Failure to specifically plead the operative facts
WASHINGTON, 12CA6 17
constituting an alleged fraud presents a defective claim that may be dismissed.” Id., citing
Universal Coach, Inc. v. New York Transit Authority, Inc., (1993), 90 Ohio App. 3d 284, 629
N.E.2d 28.
{¶ 42} In the case at bar, appellant raises alleged instances of fraud related to the physical
condition of the real estate that it did not state with particularity in its complaint. Appellant claims
that genuine issues of material fact remain as to whether appellee fraudulently misrepresented the
condition of the foundation of the church/daycare building when he stated that the building was
“fairly new” and in “good condition.” Appellant further argues that genuine issues of material fact
remain as to whether appellee failed to disclose, misrepresented, or concealed other physical
aspects of the property. The only circumstance related to the physical condition of the property
that appellant appears to have stated with particularity is that appellee “concealed a material fact by
failing to disclose * * * that the foundation of one of the buildings, then being used as a church and
day care, was faulty and defective.” Appellant’s complaint does not allege that appellee made a
misrepresentation by stating that the building was “fairly new” and “in good condition,” nor
contain any other fraud allegations regarding the physical condition of the property. Thus,
because appellant did not plead any fraud claim other than appellee’s alleged failure to disclose the
condition of the daycare/church foundation, the other fraud claims are defective on their face.
Goddard v. Stabile, 185 Ohio App. 3d 485, 2009-Ohio-6375, 924 N.E.2d 868 (11th Dist.), ¶38
(refusing to consider fraud claim relating to porch of house when complaint failed to allege that
seller fraudulently misrepresented or concealed condition of porch but did allege other fraud claims
regarding the physical condition of the home). Consequently, the only fraud claims that appellant
arguably properly pled are that (1) appellee concealed a material fact by failing to disclose that the
WASHINGTON, 12CA6 18
church/daycare building foundation was faulty and defective; and (2) appellee falsely represented
the amount of rental income generated and the duration of the tenants’ leases.
2
Church/Daycare Foundation
{¶ 43} In an ordinary real estate transaction, a seller has no duty to disclose patent defects,
but does have “a duty to disclose material facts which are latent [and] not readily observable or
discoverable through a purchaser’s reasonable inspection.” Layman v. Binns, 35 Ohio St. 3d 176,
178, 519 N.E.2d 642 (1988). When, however, a real estate sales contract includes an “as is”
clause, the seller is relieved “of any duty to disclose that the property was in a defective condition.”
Kaye v. Buehrle, 8 Ohio App. 3d 381, 457 N.E.2d 373, (9th Dist. 1983), paragraph one of the
syllabus. An “as is” clause bars an action for “‘passive nondisclosure,’ but does not shield the
seller from an ‘active’ fraud or commission (as opposed to a fraud of omission), i.e., a
misrepresentation or fraudulent concealment.” Rogers v. Hill, 124 Ohio App. 3d 468, 471, 706
N.E.2d 438 (4th Dist. 1998). An “as is” clause does not protect a seller who positively
misrepresents or conceals the complained of condition. Eiland v. Coldwell Banker Hunter Realty,
122 Ohio App. 3d 446, 457, 702 N.E.2d 116 (8th Dist. 1997). Thus, while a seller may not have a
duty to disclose a defective condition, the seller may not take affirmative steps to misrepresent or
to conceal the condition.
{¶ 44} In the case sub judice, appellant accepted the property “as is.” Thus, it may recover
from appellee only for fraudulent misrepresentation or concealment.
{¶ 45} Appellant alleges that appellee fraudulently misrepresented the condition of the
daycare building's foundation. As we stated above, however, appellant did not plead with
WASHINGTON, 12CA6 19
particularity any fraudulent misrepresentation regarding the foundation. Instead, appellant alleged
that appellee failed to disclose the condition of the foundation. Thus, this fraud claim fails as a
matter of law.
{¶ 46} Moreover, even if appellant had properly pled the fraudulent misrepresentation
claim regarding the foundation, we do not believe that any genuine issues of material fact remain
as to whether appellee made a false statement regarding the foundation. The deposition reveals
that appellee did not make a specific representation relating to the foundation. Appellant,
however, asserts that appellee’s statement that the building was “fairly new” and “in good
condition” constituted a representation regarding the condition of the daycare building. Appellant
apparently suggests that appellee’s representation implies that the foundation is “in good
condition.” While we question whether appellee’s statement could be construed as a
representation regarding the foundation, we need not resolve this issue. Instead, we believe that
no genuine issues of material fact remain as to whether appellee’s representation that the building
was “fairly new” and “in good condition” was false.
{¶ 47} Appellee’s statement that the building was “fairly new” cannot reasonably be
construed as false. The evidence demonstrates that it had been built in 2003–approximately three
years before appellant agreed to purchase it.
{¶ 48} Appellee’s statement that the building was “in good shape” also cannot be
construed as a false fact. Appellee stated that the building was “out of square.” This knowledge,
however, fails to show that the building was not “in good shape.” In fact, appellee related that
even though the building was “crooked,” it still functioned without any issues, other than the
kitchen cabinets not being level. Appellant did not present any evidence that the building did not
WASHINGTON, 12CA6 20
function as intended during appellee’s ownership or that the tenants had complained about a defect
with the foundation. The only issue demonstrated is that appellee had problems leveling cabinets
in the kitchen. This problem does not necessarily lead to a conclusion that the foundation was
defective or not “in good shape.” Furthermore, appellee did not assert that the building was in
“excellent” or “perfect” shape.
{¶ 49} Appellant nevertheless argues that even if appellee did not affirmatively
misrepresent the foundation's condition, he had a duty to disclose this alleged physical defect.
Appellant argues that appellee had a duty to disclose this condition in order to place appellant “on
equal footing.”
{¶ 50} Some courts have held that “[n]ondisclosure will become the equivalent of
fraudulent concealment when it becomes the duty of a person to speak in order that the party with
whom he is dealing may be placed on an equal footing with him.” Mancini v. Gorick, 41 Ohio
App.3d 373, 374, 536 N.E.2d 8 (9th Dist. 1987). Accord Leal v. Holtvogt, 123 Ohio App. 3d 51,
75-76, 702 N.E.2d 1246, 1262 (2nd Dist. 1998). In business transactions, however, when “parties
deal at arm’s length, each party is presumed to have the opportunity to ascertain relevant facts
available to others similarly situated and, therefore, neither party has a duty to disclose material
information to the other.” Blon v. Bank One, Akron, N.A., 35 Ohio St. 3d 98, 101, 519 N.E.2d
363, 367 (1988), citing Pomeroy, Equity Jurisprudence, Section 904 (5 Ed. Symons Ed.1941) 558;
Goldfarb, Fraud and Nondisclosure in the Vendor-Purchaser Relationship, 8 West.Res.L.Rev. 5, 25
(1956), and Umbaugh Pole Bldg. Co. v. Scott, 58 Ohio St. 2d 282, 12 O.O.3d 279, 390 N.E.2d 320
(1979).
{¶ 51} In certain circumstances, however, a duty to speak exists. Id., citing Miles v.
WASHINGTON, 12CA6 21
McSwegin, 58 Ohio St. 2d 97, 100, 12 O.O.3d 108, 110, 388 N.E.2d 1367 (1979).
“For example, a party to a business transaction in a fiduciary relationship with
another is bound to make a full disclosure of material facts known to him but not to
the other. Such a duty may also arise out of an informal relationship where both
parties to a transaction understand that a special trust or confidence has been
reposed. Full disclosure may also be required of a party to a business transaction
‘where such disclosure is necessary to dispel misleading impressions that are or
might have been created by partial revelation of the facts.’”
Id., quoting Connelly v. Balkwill, 174 F. Supp. 49, 58 (N.D.Ohio 1959) (citations omitted).
{¶ 52} In the present case, the parties engaged in a commercial real estate transaction at
arm’s length. No circumstances exists to suggest that appellee had a duty to speak. Haessly
admitted that he had an opportunity to inspect the premises and, even though it may not have been
as thorough as he now wishes it were, Haessly admitted that appellee did not prohibit him from
inspecting the premises. Appellant is a business entity formed as a real estate holding company.
Haessly is part owner of a hardwood lumber business. Appellee is a businessman who operates a
tractor sales company and a rental company. The parties did not share a fiduciary relationship.
Moreover, there is no evidence that appellant reposed a special trust or confidence in appellee. In
fact, appellant’s parents advised him not to engage in a transaction with appellee due to appellee’s
“reputation,” which Haessly described as “not real good.” Even if appellant had reposed a special
trust or confidence in appellee, the evidence does not show that appellee understood this to be the
case. Additionally, the evidence does not show that appellee made a partial revelation regarding
the foundation that gave appellant a misleading impression. Thus, we do not agree with appellant
that appellee’s nondisclosure amounted to fraudulent concealment.
{¶ 53} Consequently, we disagree with appellant that the trial court improperly entered
summary judgment in appellee’s favor regarding appellant’s fraudulent misrepresentation or
WASHINGTON, 12CA6 22
concealment claim concerning the condition of the foundation.
3
Lease Agreements
{¶ 54} Appellant also asserts that genuine issues of material fact remain as to whether
appellee fraudulently misrepresented the duration of the leases the amount of rental income that
each lease generated. Appellant claims that its reliance upon appellee’s representation was
justifiable, despite its failure to review the leases before purchasing the property. Appellant points
out that even if it had reviewed the leases to determine the contractual lease amounts, those
amounts differed from the rental income actually generated because appellee had entered into
various verbal agreements that altered those amounts.
{¶ 55} Appellant also argues that appellee made various misrepresentations regarding the
terms of the leases. Appellant contends that appellee represented that the church intended to
renew its lease for another five years, but the church had actually informed appellee, before
appellant signed the purchase agreement, that it did not intend to renew its lease. Appellant
further observes that another tenant, Grandma’s Catering, informed appellee that it would not
renew its lease and that appellee failed to disclose this fact to appellant before closing. Appellant
argues that appellee had a duty to update any information he had received regarding the status of
the current tenants’ leases before closing on the property and that his failure to do so amounts to
fraudulent concealment.
{¶ 56} Appellee counters that he did not make any false statement regarding the church’s
intention to renew its lease. Appellee asserts that even if he made any statement regarding the
church’s lease renewal, he did not know for a fact at the time whether the church would be
WASHINGTON, 12CA6 23
renewing its lease. Thus, any statement he may have made could not have been false. Appellee
offers no arguments concerning his statements regarding Grandma’s Catering’s intent not to renew
its lease. Appellee also argues that appellant failed to establish that he made any representation
regarding the lease amounts and that appellant has not produced the alleged “sheet” that appellee
provided with the rental income. He additionally asserts that appellant cannot demonstrate that it
justifiably relied upon any such statements when it did not look at the written leases before signing
the purchase agreement or before closing.
{¶ 57} Initially, we disagree with appellee that appellant’s failure to produce the “sheet”
with the listed rental incomes is fatal to its fraud claim regarding the lease amounts. The parol
evidence rule does not prohibit a party from introducing evidence extrinsic to a contract for the
purpose of proving fraud. Galmish v. Cicchini, 90 Ohio St. 3d 22, 28, 734 N.E.2d 782 (2000);
Harrel v. Solt, 4th Dist. No. 00CA27 (Dec. 27, 2000).
“It was never intended that the parol evidence rule could be used as a shield to
prevent the proof of fraud, or that a person could arrange to have an agreement
which was obtained by him through fraud exercised upon the other contracting party
reduced to writing and formally executed, and thereby deprive the courts of the
power to prevent him from reaping the benefits of his deception or chicanery.”
Galmish, 90 Ohio St. 3d at 28, quoting 37 American Jurisprudence 2d (1968) 621-622, Fraud and
Deceit, Section 451 (footnotes omitted).
{¶ 58} In the case sub judice, even if appellant cannot produce the “sheet,” appellant has
offered oral testimony regarding appellee’s representations concerning the lease amounts and
stated that they differed from the rent appellant actually received upon taking possession.
Appellee cites no authority to prohibit appellant from introducing such testimony to prove fraud.
Thus, we disagree with appellee that appellant’s failure to produce written evidence of the alleged
WASHINGTON, 12CA6 24
representations is fatal to its claim.
{¶ 59} We further disagree with appellee’s assertion that appellant cannot establish that
any representation he made regarding the church’s intention to renew its lease was false. Haessly
stated that appellee advised him before signing the purchase agreement that the church would
renew its lease for another five years. However, the church pastor's affidavit stated that he advised
appellee, before appellant signed the purchase agreement, that the church would not be renewing
its lease. Appellee’s statement conflicts with the pastor’s statement. Consequently, a trier of fact
must resolve this conflict in evidence to determine whether appellee’s statement was false.
{¶ 60} Appellee next argues that appellant’s fraudulent misrepresentation claim fails
because appellant cannot establish that it justifiably relied upon appellee’s statements regarding
rental income and the duration of the leases.
{¶ 61} “The question of justifiable reliance is one of fact and requires an inquiry into the
relationship between the parties.” Crown Property Dev., Inc. v. Omega Oil Co., 113 Ohio App. 3d
647, 657, 681 N.E.2d 1343 (1996); Harrel at fn.8. “Reliance is justifiable if the representation
does not appear unreasonable on its face and if there is no apparent reason to doubt the veracity of
the representation under the circumstances.” Amerifirst Savings Bank of Xenia v. Krug, 136 Ohio
App.3d 468, 495, 737 N.E.2d 68 (2nd Dist. 1999), citing Lepera v. Fuson, 83 Ohio App. 3d 17, 26,
613 N.E.2d 1060 (1992). The rule that reliance be justified is based upon policy and purpose:
“‘The rule of law is one of policy and its purpose is, while suppressing fraud
on the one hand, not to encourage negligence and inattention to one’s own interests.
There would seem to be no doubt that while in ordinary business transactions,
individuals are expected to exercise reasonable prudence and not to rely upon others
with whom they deal to care for and protect their interests, this requirement is not to
be carried so far that the law shall ignore or protect positive, intentional fraud
successfully practiced upon the simple-minded or unwary.”
WASHINGTON, 12CA6 25
Id. at 495-496, quoting 50 Ohio Jurisprudence 3d (1984), Fraud and Deceit, Section 132 (citations
omitted).
{¶ 62} In determining whether reliance was justified, the factfinder may “‘consider the
various circumstances involved, such as the nature of the transaction, the form and materiality of
the representation, the relationship of the parties, the respective intelligence, experience, age, and
mental and physical condition of the parties, and their respective knowledge and means of
knowledge.’” Feliciano v. Moore, 64 Ohio App. 2d 236, 241, 412 N.E.2d 427 (1979), quoting 37
American Jurisprudence 2d [1968] 330, 332, Fraud and Deceit, Section 248.
{¶ 63} “‘Where the means of obtaining the information in question were not equal, the
representations of the person believed to possess superior information may be relied upon.’”
Andrew v. Power Marketing Direct, Inc., 10th Dist. No. 11AP-603, 2012-Ohio-4371, ¶62, quoting
Fort Washington Resources, Inc. v. Tannen, 858 F. Supp. 455, 460 (E.D.Pa.1994). Conversely,
“[a]n individual has no right to rely on a representation when the actual facts are equally open to
both parties.” Takis L.L.C. v. C.D. Morelock Props., Inc., 180 Ohio App. 3d 243, 905 N.E.2d 204,
2008–Ohio–6676, at ¶30 (10th Dist.).
{¶ 64} In the case sub judice, we are unable to state, as a matter of law, that appellant’s
reliance upon appellee’s representations regarding the rental income and duration of the leases was
not justifiable. Appellant’s reliance does not appear unreasonable on its face, and the facts do not
suggest that appellant should have doubted appellee’s representations regarding the lease amounts
and renewals. Appellee informed appellant of either the rent potential or the actual rent,
depending upon whose testimony is believed. If appellee informed appellant of the actual rent,
WASHINGTON, 12CA6 26
then, under the circumstances, appellant’s reliance was not unjustified as a matter of law. Both
parties appear to have engaged in a rather sophisticated real estate transaction with little or no legal
or professional assistance. Both parties appear to possess some business acumen. Appellee
physically possessed the written leases until three days after closing. While he apparently did not
prohibit appellant from reviewing the leases, he also did not volunteer them. Moreover, appellee
specifically requested that appellant not speak with the tenants. Consequently, we cannot state as
a matter of law that appellant possessed an equal opportunity to obtain the lease information and
appellant’s reliance upon appellee’s representations was not patently unreasonable.
{¶ 65} To the extent appellee asserts that his request that appellant not speak with the
tenants should have alerted appellant to the possibility that appellee was not telling the truth and,
thus, appellant should not rely upon appellee’s representations, we observe that “any number of
sounds business reasons” may exist to “keep negotiations confidential until the deal is finalized.”
Millersport Hardware, Ltd. v. Weaver Hardware Co., 5th Dist. No. 08-CA-86, 2009-Ohio-6556,
¶31. Appellant apparently took appellee’s request to keep the transaction confidential at face
value and not as an indication that appellee was attempting to defraud him.
{¶ 66} Additionally, even if appellant had attempted to verify the actual rent by reviewing
the leases, appellee does not dispute that the leases did not reveal the true rent each tenant paid.
Appellee admitted that he had various verbal agreements that altered the contractual amounts.
Thus, whether appellant’s reliance upon appellee’s statements regarding the rental income was
justifiable is a question of fact.
[Cite as Mar Jul, L.L.C. v. Hurst, 2013-Ohio-479.]
{¶ 67} Moreover, we believe that whether appellant’s reliance upon appellee’s statements
regarding the duration of the leases was justifiable also presents a question of fact. According to
appellant, appellee informed it that at least two tenants would renew their leases when appellee
allegedly had been informed otherwise. Appellee again asserts that appellant’s reliance was
unjustified because, if appellant had looked at the leases, it would have discovered when the leases
expired. Appellee, however, allegedly specifically informed appellant that when the leases
expired, the church and Grandma’s Catering would renew their leases. In light of these
circumstances, appellant’s reliance does not appear unreasonable and a trier of fact should
determine whether appellant’s reliance was justified. Consequently, we agree with appellant that
the trial court should not have entered summary judgment in appellee’s favor regarding the
fraudulent misrepresentation claims relating to the lease amounts and renewals.
{¶ 68} Accordingly, based upon the foregoing reasons, we overrule in part, and sustain in
part, appellant’s assignment of error. We affirm the trial court’s summary judgment in appellee’s
favor regarding the fraud claims relating to the physical condition of the property. We, however,
reverse and remand the trial court’s summary judgment in appellee’s favor regarding the fraud
claims relating to the lease amounts and renewals.
` JUDGMENT AFFIRMED IN PART,
REVERSED IN PART, AND
REMANDED FOR FURTHER
PROCEEDINGS CONSISTENT
WITH THIS OPINION.
WASHINGTON, 12CA6 28
JUDGMENT ENTRY
It is ordered that the judgment be affirmed in part, reversed in part, and remanded for
further proceedings consistent with this opinion. Appellant and appellee shall equally divide the
costs herein taxed.
The Court finds there were reasonable grounds for this appeal.
It is ordered that a special mandate issue out of this Court directing the Washington County
Common Pleas Court to carry this judgment into execution.
A certified copy of this entry shall constitute that mandate pursuant to Rule 27 of the Rules
of Appellate Procedure.
Kline, J.: Concurs in Judgment & Opinion
McFarland, P.J.: Concurs in Part (physical condition fraud claims)& Dissents in Part (lease
fraud claims)
For the Court
BY:
Peter B. Abele, Judge
NOTICE TO COUNSEL
Pursuant to Local Rule No. 14, this document constitutes a final judgment entry and the
time period for further appeal commences from the date of filing with the clerk.